Defendants who allegedly ran a fraudulent scheme that lured consumers into making lengthy and expensive calls -- unknowingly -- to Guyana or the Caribbean, have agreed to pay a total of $111,000 in consumer redress to settle Federal Trade Commission charges against them. The FTC had alleged in December that Daniel B. Lubell, doing business as Mercantile Messaging and DB&L, Inc., solicited consumers to call what turned out to be international numbers to enter a free Hawaiian vacation sweepstakes and to obtain information about free or discount travel. According to the FTC, however, Lubell did not inform consumers that they would incur a significant charge -- up to $2.33 a minute, or more than $30 for listening to the entire message -- on their telephone bill, that even after calling they could enter the sweepstakes only by mail, or that they first had to buy an airline ticket to benefit from the information he was selling. The FTC alleged that the defendants’ practices violated the FTC Act and the FTC’s Telemarketing Sales Rule. The settlement, in addition to requiring the redress payment, prohibits similar violations in the future.

Lubell lives in Bettendorf, Iowa, where corporate defendant DB&L is located. Mercantile Messaging L.L.C. is based in Rock Island, Illinois, but also has used a Moline, Illinois, address. The Wisconsin Attorney General’s office joined the FTC in its lawsuit against Lubell and his companies, and is a party to the settlement.

The FTC’s Telemarketing Sales Rule prohibits a variety of deceptive and abusive telemarketing sales practices. It requires telemarketers to disclose up front the fact that they’re making a sales call and the nature of the products and services being offered. It also requires telemarketers to disclose cost and other information before they ask consumers for any money. This settlement makes clear that the Telemarketing Rule applies to audiotext services.

Audio information and entertainment programs that consumers access by dialing telephone numbers other than those beginning with the "900" prefix are not covered by another Commission rule, the 900 Number Rule, because they were not covered by the underlying statute. The 900 Number Rule requires cost disclosures in advertisements for such numbers, requires cost and other important disclosures in a free introductory message for 900-number services, and gives consumers the right to dispute charges for calls without endangering their credit records. The Telecommunications Act of 1996 authorized the Commission to broaden the rule to cover additional audiotext services that are susceptible to the unfair and deceptive practices it prohibits. The FTC initiated a rule amendment proceeding in March that could result in such an expansion.

"International audiotext schemes have grown dramatically in the recent past as scam artists try to evade the 900 Number Rule’s cost-disclosure and free preamble message require ments," said Jodie Bernstein, Director of the FTC’s Bureau of Consumer Protection. "But the defendants didn’t get away with it in this case, which was the first federal action targeting a deceptive international audiotext service. The settlement we have negotiated requires Lubell and Mercantile Messaging to turn over a substantial amount of their assets and to abide by broad restrictions on future business practices. Whether we will extend the 900 Number Rule to cover international audiotext services is under review, but in the meantime, this case shows that the FTC stands ready to enforce other laws prohibiting deception in the audiotext industry."

Prior to the advent of international audiotext services, consumers accessed interstate audiotext services by dialing a 900 number and intrastate audiotext services by dialing a 976 number. While international audiotext services are not inherently deceptive, according to the FTC staff, they grew as fraudulent sellers searched for ways to offer audiotext services without having to abide by the 900 Number Rule’s disclosure requirements. To get paid for the infor mation or entertainment they sell to consumers, these services depend on revenue sharing arrangements with overseas telephone companies, whereby the audiotext sellers collect, through a third party which negotiates such deals, a portion of the long distance rates that show up on consumers’ telephone bills.

In the Lubell case, the FTC alleged, the defendants received 37 cents a minute for a 15- minute, repetitive, recorded message that explained how to get bumped from oversold flights in order to obtain free airline tickets. The message also gave consumers an address to which they had to write in order to get an entry form for the sweepstakes, and told them that Lubell and his firms do not charge for the information they provide, the FTC alleged.

"The longer the call, the greater the fee, and the larger the cut received by the inter national audiotext seller, so the incentive is to keep consumers on the line as long as possible," Bernstein said. "Our advice to consumers is to be aware that, when they dial a telephone number beginning with 011 or with one of the many new Caribbean area codes, such as 809, 758 or 664, they are placing an international call and will be billed at international rates."

Upon filing of the FTC complaint, the federal district court granted the FTC’s request for a temporary restraining order halting the scheme and freezing the defendants’ assets. The settlement -- a stipulated final order -- ends the litigation. The stipulated final order:

Prohibits the defendants from using any false or misleading representations to solicit the purchase of audiotext services, including false claims that consumers may enter a sweepstakes by dialing an audiotext number, and requires them to clearly and conspicuously disclose that a call is not necessary to enter the sweepstakes;

Prohibits the defendants from claiming that they will provide information about how to fly at no expense on commercial airlines unless they clearly and conspicuously disclose any costs consumers will incur to take advantage of the information;

Prohibits the defendants from misrepresenting that they do not charge or do not receive consideration for information they provide through their telephone numbers;

Prohibits the defendants from violating the Telemarketing Sales Rule, specifically requiring them to disclose the maximum charge a caller would face and all information the caller would need to determine the exact cost before the call is placed;

Requires the defendants to disclose the total cost of the call in a preamble message no longer than 15 seconds, and in reasonably understandable language, at the beginning of each audiotext call; and

Requires the defendants to turn over $111,000 within 10 days. If refunds to consumers are impractical, the funds will be turned over to the U.S. and Wisconsin Treasuries.

The Commission vote to accept the settlement for filing in court was 5-0, with Commissioner Mary L. Azcuenaga dissenting from paragraph VIII of the order. The settlement documents were filed and entered May 27 in U.S. District Court for the Southern District of Iowa, Davenport Division.

NOTE: This stipulated permanent injunction is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Such settlements have the force of law when signed by the judge.

Copies of the settlement, other documents associated with this case, and the International Telephone Number Scams brochure are available from the FTC’s web site athttp://www.ftc.gov and also from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC File No. X970013)

(Civil Action No. 3-96-CV-80200)

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